Rupert Murdoch’s pursuit of full ownership of BSkyB comes as News Corp. is looking for ways to put to use the $8 billion in cash that the conglom has on its balance sheet.
But it also reflects Murdoch’s long-held desire to reclaim full control of the satcaster he launched in 1989.
Timing of Murdoch’s move comes as the U.S., U.K. and other key territories are starting to recover from the economic tremors of the past two years, which makes it a better environment for News Corp. to launch a takeover bid.
News Corp.’s initial offer for the 61% of BSkyB that it does not own was rejected Tuesday by the satcaster’s independent directors, but BSkyB entered into a “cooperation agreement” with News Corp. that means negotiations will continue with the intent of reaching a deal. However, any transaction is sure to face heavy scrutiny from British regulators.
“We’ve considered an offer to buy the outstanding shares in the past, and we feel now is the right time for both companies,” Chase Carey, News Corp.’s deputy chairman, said on a conference call Tuesday.
Carey noted that the $10.31 offer amounts to a 22% premium over BSkyB’s share price on June 9.
News Corp. plans to borrow about $4 billion as part of the transaction, but most of the deal will be funded with cash on hand. Carey stressed that the deal will help simplify News Corp.’s corporate structure and give it a stronger base in the subscription TV biz, which is less sensitive to economic ups and downs than ad-dependent businesses.
“It will reduce the concentration on cyclical advertising revenues and increase our direct consumer subscription revenues, providing more stability and predictability in future revenues and earnings,” Carey said.
Confirmation of News Corp.’s pursuit of the satcaster sent the price of BSkyB stock soaring in early trading on the London market on Tuesday. At one point, the price rose 21% to $10.75 before falling back to close at $10.35, up 16.57%. In the U.S., News Corp. shares shot up $1.25, or 9.5%, to $14.37 at close of trading.
Murdoch launched Sky as the U.K.’s first pay TV platform in 1989 and took over rival British Satellite Broadcasting, which bowed soon after, in October 1990. It quickly became clear that the local market could not support both.
Murdoch continued to back BSkyB, almost bankrupting News Corp. at one point, before the satcaster began to break even; it now ranks as the dominant U.K. paybox.
BSkyB went on to transform the U.K. broadcasting landscape, and has continued to perform strongly despite the sour economy.
News Corp.’s attempt to own the satcaster lock, stock and barrel will be subject to an investigation by regulator Ofcom, which could last into the new year.
It would also raise corporate governance issues. BSkyB’s chairman is James Murdoch, who is also topper of News Corp.’s European and Asian businesses. He would not be able to take part in board discussions about the News Corp. bid.
Among independent shareholders are U.S. investors BlackRock, Franklin and Brandes, U.K. investor Legal & General, and the Singaporean government.
Undoubtedly, it will pose a headache for Blighty’s new Conservative-led coalition government.
Murdoch’s British papers, led by mass-selling tabloid the Sun, were cheerleaders for the Conservatives during the recent election. The Conservatives have traditionally favored News Corp.’s expansion in the U.K.
But the party’s coalition partners, the Liberal Democrats, have voiced concern over Murdoch’s huge influence in the British media — his other interests include the News of the World, the Times and the Sunday Times.
Indeed, Ofcom recently forced BSkyB to sell down its stake in commercial broadcaster ITV from 17.9% to 7.5%, fearing it gave News Corp. too great an influence in the media market. BSkyB’s investment in ITV, championed by James Murdoch, resulted in a loss of about $1 billion for News Corp., which it has been writing off over the last couple of years.